Large Bank Examination Workshop February 2026

Discussion: Validation 1. For each of the elements of effective validation on the previous slide, what are some of the activities, techniques and methods that should be included in the process? 2. For obvious reasons, validation should not be done by those responsible for developing the model or those who have a stake in whether the model is determined to be valid. Why might this sometimes be difficult to achieve, and what steps can banks take to ensure properly independent validation?

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Model Exceptions • Institutions should have processes and policies in place to manage model exceptions:  Use of unapproved models  Use of a model outside its intended purpose  Use of a model that has breached performance metrics  Back-testing shows model results inconsistent with actual outcomes • Exceptions should be escalated to the model risk committee or senior management, and the oversight authority should have the power to impose restrictions on use of the model

• Internal audit should maintain an ongoing review of the process.

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